Japan Gets a New Government

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The DPJ can also benefit from an improving global economy and the impact of Japan's $269 billion economic stimulus package, formulated by the LDP in response to the global financial crisis. Indeed, while it was too late to save the LDP, Japan's GDP increased an annualized 3.7% in the April-June quarter after falling at a double-digit pace in the two previous quarters.

Even so, easing Japan's malaise, which dates back to the collapse of the bubble economy in the early 1990s, may take more than a change of government and being in the right place at the right time. The DPJ must perform in office. That's by no means a certainty given that the party, understandably, lacks experience.

Another problem is how it will fund its consumer-friendly policy pledges, which include postponing a hike in the 5% consumption tax, raising the minimum wage by nearly 40%, cutting the gasoline tax, and eliminating pricey highway tolls. "We will help households with their finances and revive the economy through stronger domestic demand," Hatoyama told reporters on Aug. 1. Yet the party will take the reins at a time when Japan's gross government debt is already the highest in the world and, according to some forecasts, set to reach 200% of GDP.

"the numbers don't add up"

The DPJ appealed to voters with promises to fund its plans by finding savings in Japan's giant bureaucracy. That's popular with many voters, but it's a familiar—and often ultimately unsuccessful—tactic of opposition parties seeking power. "When you look at their economic plans, you're worried," says Richard Jerram, an economist at Macquarie Securities in Tokyo. "The numbers don't add up."

Naohiro Yashiro, a professor of economics and business at International Christian University in Tokyo, is concerned that a DPJ government will be too pro-regulation. For instance, he worries that it will pass legislation making it harder for companies to use part-time workers. "If such a plan were realized, Japanese corporations would go abroad, and no foreign companies would come to Japan," he says.

Indeed, the DPJ so far has offered few concessions to business. The DPJ plans t o lower taxes for small and midsize companies, reform fisheries and farming, and aggressively promote renewable-energy technologies. But without more coherent policies for business, critics say, investment—and the economy—may suffer. "The DPJ has no real strategy for the corporate sector," says Takuji Aida, an economist at brokerage UBS (UBS). Now, with the DPJ's election victory secured, all eyes in Japan will be on the party's next steps.

With Hiroko Tashiro in Tokyo. Rowley is a correspondent in BusinessWeek's Tokyo bureau.

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